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Question

I have a small business with a handful of employees and, although I am not ready for a full-time accountant, I know I need better reporting and control of the company.  Any recommendations for me?

Answer

The great news is that in the virtual outsourcing world, there are numerous options for you to explore.  One way to think about it is to organize the overall tasks in finance and accounting and decide which tasks you can easily perform and which ones you would prefer to outsource to a finance and accounting (F&A) outsourcer.

A typical task list might be organized like this:

Financial Management

·    Provide accounting and financial software

·    Manage general ledger

·    Manage annual budget and forecast

·    Reconcile monthly bank statements

·    Prepare standard monthly financial reports by the 20th day following month-end with standard account codes

·    Prepare standard year-end financial reports by the 45th day following year-end with standard account codes

Accounts Receivable Management

·    Handle customer invoice inquiries

·    Receive payments

·    Apply cash

·    Interface with bank

·    Reconcile payments

·    Manage chargebacks and reversals

·    Post AR

·    Contact accounts to collect post-due amounts (once per month)

·    Prepare account status report

·    Research and resolve AR

·    Print and mail collection letters

·    Referral to collections company (any account >120 days)

·    Analyze and reconcile short pays

·    Process write-offs and adjustments

Accounts Payable Management

·    Enter vendor invoice and pay vendor bill

·    Receive sales data and invoice information

·    Enter invoice data into Accounting System

·    Generate customer bills

·    Print and mail customer invoices

Tax Management

·    Provide tax management system

·    Collate information for Federal and State tax return preparation and coordinate with the tax preparation firm on the filing

·    Prepare and issue W-2s and 1099s

If you do not currently have an accounting system set up, there will be tasks such as:

·    Set-up accounting system with initial balances

·    Set-up chart of accounts

·    AR and collections process configuration

·    AP process configuration

·    Bank account set-up

·    Financial records input

·    Financial report mapping

·    Budget input

And then, there are miscellaneous ongoing tasks such as:

·    Any accounting Financial Management, Accounts Receivable Management or Tax Management services for any periods prior to the commencement date of the services agreement

·    Any customized financial reports

·    Any customized collections procedures

·    Any audit support time

·    Any bank accounts in excess of the standard one or two accounts (involves additional reconciliation work)

·    Any tax advisory services

·    Any strategic consulting services

Another decision you will need to make is the general level of sophistication that you want/need which will range from bookkeepers, small CPA firms to full-blown F&A outsourcers.   This level of sophistication will need to be consistent with your business model and capital structure.  For example, the more complex the business model, the more the working capital challenges, the more external investors or owners, etc., the more sophisticated services you will need in order to properly manage your challenges and complexities.  A bit more on the range of services and service providers follows:

·    Bookkeeping Services – There are plenty of small, local bookkeeper services in major markets that offer low-cost bookkeeping services to small companies.  These services will generally be performed by a bookkeeper that does not have an accounting degree and is not a Certified Public Accountant (CPA).  Their deliverable will generally be QuickBooks paper-based reports once a quarter.  The financial reports will usually be on a Cash basis, rather than Accrual basis.  Click here to read more about what I recommend.  These services will generally start as low as $75 per month based upon the number of general ledgers and frequency of reporting with a billing rate starting in the $30 - $50 per hour range.   A key risk with these types of providers is the lone bookkeeper that get sick, goes on vacation or shuts down their business.

·    Accounting and CPA Services – In the middle of the spectrum of service providers are small accounting and CPA firms that offer services to small firms, but with additional sophistication.  These firms will often use online software that allows you some interaction with them and their services and reports and should not have any issue with Accrual-base accounting if you decide to go that route.  They should also be able to provide additional insight and advice about your operations and will typically offer monthly online reports for faster operational feedback for you and your company.  They will typically staff your work with bookkeepers performing the data entry and an accountant reviewing and closing out the monthly reports.  These services will generally start as low as $200 per month based upon the number of general ledgers and frequency of reporting with a blended billing rate starting in the $75 per hour range.

·    F&A Outsourcers – At the high-end of the service spectrum are full-blown professional outsourcing firms that may be global in their reach and offer a full range of web-based services that allow you to interact with any process along the chain of events laid out above.  For example, if you want them to create invoices, but let you review and approve prior to them sending out the invoices, their sophisticated systems will allow that type of interaction.  They will typically have operations in outsourcing hotspots such as India and the Philippines performing some of the lower-skilled tasks, while having U.S.-based or at least U.S.-trained accountants and CPAs and account managers involved in the higher-skilled tasks and relationship management.  Their systems will usually included embedded intelligence such as balance alerts, variance alerts and automated tips and suggestions based upon the company’s performance.  Many of their reports will be in real-time that provide you valuable insights for quicker response.  These services will generally have a minimum monthly fee in the range of $350 – 500 per month and a variable charge for each and every process performed such as $0.10 per AP invoice entered, $0.65 per invoice mailed to a client, etc.  Any custom services will be negotiated separately.